Australia and Asia, well positioned for 2011

By Nigel Harse & Rod Hore
Rod Hore:

Australia and Asia are well positioned for economic expansion in the recruitment industry in 2011. HHMC has been surprised, in a positive way, by the level of corporate activity in the latter part of 2010. Earlier in the year we predicted how the run into next year was going to evolve for our advisory and M&A business.

2010 predictions:

Firstly we assumed that the lessons of the GFC would stay close to the hearts of owners and managers of agencies for the remainder of 2010, leading to cautious business decisions and limited focus on non-organic growth. We predicted that the companies seeking to be sold would be those that had encountered financial and structural issues during the GFC and now that their business had stabilised would be seeking to divest in the latter part of 2010.
We predicted that most of the buyers in the market would be those seeking a “bargain” and looking for companies that had been impacted by the downturn.
As part of this picture we also assumed business owners would be keeping their cautious approach until the effects of this December/January holiday period were known and business had ramped up again in the New Year.

How wrong we were:

What has occurred this year has been much more positive and there has been a greater level of corporate activity.
Australia has returned to candidate short status in many sectors which is a return to good times in the industry. As the downturn proved, it is better to have a shortage of candidates rather than a shortage of job orders.
Many companies have rebounded to former levels of revenue and profitability. The speed of the rebound and the forecast sustainability of the rebound has given owners and managers the confidence to execute their strategies, whether being a sale strategy or a growth strategy that may include acquisition.
Asia, especially Singapore, appears to be absolutely booming and is very quickly getting back its position as the gateway to Asia (or at least the gateway to South East Asia). We are aware of many international companies that have relocated their Asia Pacific headquarters away from Hong Kong or Australia and into Singapore in recent times. This positive outlook has created renewed enthusiasm for Australian companies looking to expand their geographic coverage into Asia.
Europe, with the exception of Germany, has a poor economic outlook for the immediate future. At best it is stagnating and not providing the positive growth outcomes business owners and managers are seeking. In this environment there are an increasing number of companies seeking access to the Far East. Expansion to Australia or Singapore is seen as a sensible first option due to the ease of language and familiar legal environment. The number of enquiries we have received from Europe, especially the UK, is increasing monthly.
North America is a little harder to understand and predict. With the exception of the global companies, the economic circumstances of the US seems to have caused most recruitment companies to stay focussed within North America and HHMC is not seeing much Australian activity from these companies.

What does this mean?

We predict that 2011 is going to be a period of great corporate activity within the recruitment industry.
Medium to large privately owned companies will be auditing their capacity and capability before embarking on growth strategies across sectors and geographies. Some of this growth will be “built” and some will be “bought”. These companies will seek to compete with or acquire the smaller niche companies.
Smaller privately owned companies that have strength of clients, candidates and staff in their niche will again be targets for those seeking to expand into their sector or geography. For those owners seeking to exit, there will continue to be willing but demanding buyers available.
Australian listed companies will emerge into the market again using acquisitions to complete strategic objectives and provide accretive benefits to shareholders.
The impact of international transactions will be felt in 2011. In the past it has been the well known global companies that have acquired in Australia and New Zealand, but we expect smaller niche organisations to be leading the way as they establish global footprints to target scarce candidates. The way that these companies acquire, the benefits they bring, the prices they pay and the structure of the transactions will shake up the local buyers.
We expect a lot more local companies to expand their operations into Asia. This is a well known money-pit for organisations that do not approach this move carefully – the most successful tend to be on the back of great client relationships from another region. However a company gets to Asia, talent acquisition is problematic and can be a significant drain on resources.

And there is more:

All this proposed M&A activity sits alongside an increase in outsourcing, changes in technology, staff cost pressures, new methods of talent acquisition and the continued rise of social media. We’re in for a fun year.

2011 and it’s full steam ahead!

Nigel Harse:

Many business owners will look back at the 2010 calendar year and have good reason to be pretty happy with a much healthier bottom line performance. I believe it’s the year Australia returned to being “the lucky country” as we have been seen to stand out in the troubled crowd, as a nation and an economy!
The financial fiasco in Europe has yet to play out but we remain confident that the resources boom will again keep us out of trouble. There is no doubt that market conditions have improved in terms of volume, but margins and fees have been under pressure for 18 months and only in the tail end of the year have they shown signs of recovery. The data from the RIB Report suggests that temp and contractor sales are up 37% on average; however gross profit as a percentage of sales has fallen from 17% to 15% with PSAs having a growing impact on this erosion. Annual average charge and pay rates for temps and contractors are up 2%. Internal productivity when measured in terms of “hours processed/total internal headcount” has improved by 29% to an all-time high.
The good news continued with the perm sector bouncing back with an average 50% growth in placements and sales, the average fee remaining stable at $7,700. Perm contribution to total gross profit has returned to 40% and productivity when measured in terms of “perm placements/total headcount” has improved by 44%.
The average firm will have grown total gross profit by 28% along with a reasonable increase in operating expenditure of 10%. Profitability during the year continued to improve and closed with a staggering 300% improvement. Overall most indicators suggest we are back to the levels seen throughout 2007 (just nine months pre-GFC).
The national unemployment rate at 5% to 5.2% along with predictions that it may well fall to 4.6% in the near future suggests that the skills shortage issue will get worse and even more competitive as the resource sector strives to achieve its growth targets. The skills shortage will not go away and talented candidates will still be hard to find, yet the majority of recruitment firms will continue to place more value on a job order over the value of a candidate.
Immigration reform will have to be made to ensure that projected skill shortages and lack of qualified people do not slow down the projected $900 billion in infrastructure and construction investments planned for the next five to 10 years.
Advancements in technology, social media and the web will offer many more opportunities to reach a clearly defined audience, more creatively and quicker, and at a reduced cost. Some in the industry may be threatened by the advances being made by the job boards with competing service offerings springing up, and SEEK may achieve its stated aim “of owning (and capitalising on services driven by) the biggest and best resume database in Australia”, who knows?
LinkedIn will further capitalise on the power and reach of a fast, self-expanding professional network. The planned launch of its Referral Engine will prompt users (for financial gain) to make more referrals by identifying and alerting them to the most qualified employees from within their professional network. Next off will be Jobs For You which will allow users to select a target audience based on criteria like function, industry, past employer and seniority, and then channel their job ads to those people.
CareerOne’s launch of their behavioural targeting option will allow users to target local and international job hunters based on their known search behaviour. So overall an interesting array of new services will be available.
The demand for global recruitment assignments will continue to increase and the speed and cost of delivery will be the driver towards total technology dependency. Highly stylised web based registration, competency screening, reference checking and virtual interviews will enable greater access to and faster processing and placement of qualified candidates, from anywhere, to anywhere without moving away from the desk.
The general indicators and outlook for our industry in 2011 is good but caution is urged, don’t let the market draw you in to an over dependency on the perm market, it will drop away again by 50% to 60% the minute there is too much uncertainty around Europe or the global economy. Stay focused on achieving a sustainable business mix and if problems do occur you will be much better positioned to ride the storm. Happy recruiting!


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